RealTime IT News

What's Next for Genuity?

The black rocket is sputtering.

Genuity , a Woburn, Mass.,provider of Internet services faced with mounting debt, a limping economy and the loss of its biggest backer, faces a battle for survival.

Its best hope is to find another deep-pocketed telecom hungry for new corporate clients. But given the sector meltdown, such guardian angels are difficult to find. In the meantime, CEO Paul Gudonis, who claimed to be surprised by Verizon decision to bail out, said officials at the Woburn, Mass., firm will look at "restructuring our operating plan."

In addition to raising the specter of additional layoffs, an overhaul likely means the sale of business lines and facilities. But which ones to sell, and to whom?

"Domestically it's a little hard to say (who prospective buyers might be), there are so many choices for buyers," said Lisa Pierce, an telecom analyst with Giga Group, a Boston IT market researcher.

Genuity, spun out as part of GTE's merger with Bell Atlantic (now Verizon) in 2000, has a range of offerings. Best known (thanks to millions of dollars in advertising) is Black Rocket, a network services platform that helps companies manage critical IT systems. Additionally, Genuity provides Internet access, Web hosting and virtual private networks (VPNs).

Technologically, the VPN business is the most marketable, Pierce said. But other products and services don't offer much in the way of competitive advantage.

"They face a similar problem as WorldCom," Pierce said referring to the bankrupt telecom giant. "Assets that were valuable a couple of years ago, aren't anymore."

For example, last June, Genuity bought Integra, a hosting service operating in Western Europe. At the time, the stock deal was valued at about $106 million and the operation was re-branded Genuity Europe. But like the United States, that overseas market was already overcrowded and "due for a meltdown," Pierce said.

British Telecom Ignite has expressed some interest in picking up WorldCom assets and may be a potential buyer for some of Genuity's overseas facilities and business lines, Pierce said. Again, however, it's a buyer's market.

The financial community's reaction to Verizon's pullout makes Genuity's comeback even more difficult. The company's stock plummeted 2.3, or 88 percent, to 2.3 in a frenzied sell-off by individual and institutional investors.

Both Standard & Poor's and Moody's lowered their credit rating on Genuity, the latter saying "the outlook is negative." Like a consumer deemed a bad credit risk by a mortgage lender, the lower rating means if Genuity is able to arrange additional loans, rates won't be as favorable.

For operating capital, the Woburn, Mass., company drew an additional $723 million under credit from eight banks, bringing cash on hand to $1.3 billion. Deutsche Bank balked at providing additional funds. Genuity said it will sue Deutsche Bank to comply with its agreement.

In the meantime, Genuity executives will continue to look for ways to cut costs and attract a major investor. Verizon will honor a $500 million contract for Genuity's services and will continue to resell Genuity's enterprise Internet protocol networking services.

But even with that commitment and network and data center assets, analysts such as Rosemarie Kalinowski at Stardard & Poor's questions Genuity's "viability as a going concern."